In re TIBCO Software Inc. Stockholders Litigation ( 2014 )

IN THE COURT OF CHANCERY IN THE STATE OF DELAWARE
IN RE TIBCO SOFTWARE INC. CONSOLIDATED
STOCKHOLDERS LITIGATION C.A. No. 10319-CB
MEMORANDUM OPINION
Date Submitted: November 21, 2014
Date Decided: November 25, 2014
Stuart M. Grant and Cynthia A. Calder of GRANT & EISENHOFER, P.A., Wilmington,
Delaware; Mark Lebovitch, Richard Gluck, Edward G. Timlin, Adam Hollander and
John Vielandi of BERNSTEIN LITOWITZ BERGER & GROSSMANN LLP, New
York, New York; Francis Bottini, Jr. of BOTTINI & BOTTINI INC., La Jolla,
California; Juan E. Monteverde and James Wilson, Jr. of FARUQI & FARUQI LLP,
New York, New York; Counsel for Lead Plaintiff.
Tamika Montgomery-Reeves and Bradley D. Sorrels of WILSON SONSINI
GOODRICH & ROSATI, PC, Wilmington, Delaware; Steven M. Schatz, David J. Berger
and Katherine L. Henderson of WILSON SONSINI GOODRICH & ROSATI, PC, Palo
Alto, California; Counsel for Defendants TIBCO Software Inc., Vivek Ranadivé, Nanci
Caldwell, Eric Dunn, Manuel A. Fernandez, Phillip Fernandez, Peter Job, David J. West
and Philip Wood.
Gregory P. Williams, Anne C. Foster and J. Scott Pritchard of RICHARDS, LAYTON &
FINGER, P.A., Wilmington, Delaware; Yosef J. Riemer, P.C., Matthew Solum, David S.
Flugman and Shireen A. Barday of KIRKLAND & ELLIS LLP, New York, New York;
Counsel for Defendants Balboa Intermediate Holdings, Balboa Merger Sub, Inc., and
Vista Equity Partners V, L.P.
Kevin G. Abrams and J. Peter Shindel, Jr. of ABRAMS & BAYLISS LLP, Wilmington,
Delaware; Paul Vizcarrondo, Jr., Carrie M. Reilly, Steven Winter and Luke M. Appling
of WACHTELL, LIPTON, ROSEN & KATZ, New York, New York; Counsel for
Defendant Goldman, Sachs & Co.
BOUCHARD, C.
I. INTRODUCTION
In this action, a stockholder of TIBCO Software Inc. (“TIBCO” or the
“Company”) challenges the per-share consideration that Vista Equity Partners V, L.P., a
private equity fund, agreed to pay in a recently announced merger (the “Merger”) in
which TIBCO stockholders currently stand to receive $24.00 in cash per share. In its
press release announcing the Merger, TIBCO stated that the transaction, at $24.00 per
share, reflected an enterprise value for the Company of approximately $4.3 billion. This
enterprise value implies an equity value of approximately $4.244 billion.
The enterprise value stated in the press release was incorrect because it was based
on inaccurate information about the number of fully diluted shares of TIBCO stock to be
acquired by Vista. A merger at $24.00 per share, based on the accurate number of fully
diluted shares, translates to an enterprise value for TIBCO of approximately $4.2 billion
and an equity value of approximately $4.144 billion—a difference of approximately $100
million, or approximately $0.58 per share, from what the Company had announced.
On October 16, 2014, TIBCO filed its preliminary proxy statement for the Merger,
which disclosed the error in the share count and that, based on the accurate share count,
the enterprise value of the transaction would be approximately $100 million lower than
what had been announced in the press release. The financial press quickly picked up on
this surprising development, prompting this lawsuit.
On October 23, 2014, the TIBCO board of directors (the “Board”) met to consider
its options after the share count error was discovered. The preliminary discovery record
shows that the Board did not know at that time how the error had occurred or whether
1
Vista had relied on the incorrect share count in making its $24.00 per share bid. The
record does reflect, however, that the Company’s financial advisor in the Merger,
Goldman, Sachs & Co. (“Goldman”), did know by that time that Vista had in fact relied
on the inaccurate share count. The Board decided not to approach Vista to seek to
modify the $24.00 per-share price stated in the merger agreement and, instead, decided to
proceed with the Merger on the terms stated in the merger agreement. The Board also
decided not to change its recommendation that TIBCO stockholders vote in favor of the
Merger.
TIBCO stockholders are set to vote on the Merger on December 3, 2014, and the
Merger is expected to close shortly thereafter. Plaintiff seeks to enjoin the stockholder
vote until the Court can decide, after an expedited trial, his claim that the per-share
consideration in the merger agreement between TIBCO and Vista should be reformed
from $24.00 to $24.58. Plaintiff also seeks a preliminary injunction based on a breach of
fiduciary duty claim against the directors of TIBCO and aiding and abetting claims
against Vista and Goldman.
Plaintiff’s fiduciary duty claim challenges the actions of the TIBCO board after
the error in the share count was discovered. Plaintiff does not challenge the sale process
that led to the execution of the merger agreement, or any of the disclosures in the proxy
statement issued in connection with the upcoming meeting of TIBCO stockholders to
vote on the Merger. Plaintiff candidly acknowledges that he has no quarrel with the
quality of the sale process but, instead, seeks only to maintain what he believes was the
result of that process—a transaction with an equity value of $4.244 billion.
2
In this opinion, I conclude that Plaintiff has failed to demonstrate a basis for the
issuance of a preliminary injunction. Regarding Plaintiff’s claim for reformation,
Plaintiff has demonstrated a reasonable probability of proving by clear and convincing
evidence that Vista and TIBCO both operated under a mistaken assumption that the
Merger would be consummated at an aggregate equity value of $4.244 billion. Plaintiff
has failed to demonstrate, however, a reasonable probability of proving by clear and
convincing evidence—as he must to prevail on a claim of reformation under Delaware
law—that Vista and TIBCO had specifically agreed before signing the merger
agreement that the Merger would be consummated at an aggregate equity value of
$4.244 billion. Instead, the preliminary record shows that what Vista ultimately offered
and what TIBCO ultimately accepted when they negotiated the final terms of the Merger
was expressed in terms of dollars per share (i.e., $24.00 per share) and not in terms of an
aggregate equity value.
Regarding Plaintiff’s fiduciary duty-related claims, Plaintiff has failed to
demonstrate the existence of irreparable harm given that his claims concern a quantifiable
sum of money (approximately $100 million) that may be remedied by an award for
damages. In my view, moreover, the balance of the equities clearly weighs in favor of
permitting TIBCO’s stockholders to decide whether or not to approve the Merger, which
was the product of an extensive sale process and affords stockholders an opportunity to
obtain a meaningful premium for their shares.
3
II. BACKGROUND 1
A. The Parties
Defendant TIBCO, a Delaware corporation based in Palo Alto, California, is in the
enterprise software industry. TIBCO is named as a defendant “solely as a necessary
party for the Count seeking reformation of the merger agreement.” 2
Defendants Vivek Ranadivé, Nanci Caldwell, Eric Dunn, Manuel A. Fernandez,
Phil Fernandez, Peter Job, David J. West, and Philip Wood were the eight members of
the Board during the events in question. Each has been a director since at least June
2014, with three directors having joined the Board in 2014. Ranadivé is the chair of the
Board and the Company’s Chief Executive Officer. He owns more than 9 million shares
of TIBCO stock.
Defendant Vista Equity Partners V, L.P. is a fund affiliated with private equity
firm Vista Equity Partners. It formed two entities to acquire TIBCO: (i) Defendant
Balboa Intermediate Holdings, LLC, a Delaware limited liability; and (ii) its merger
1
The facts recited in this opinion are drawn from the documentary evidence and
deposition testimony submitted by the parties in conjunction with Plaintiff’s preliminary
injunction motion.
In expedited discovery in this action, Plaintiff deposed three individuals: (i) Defendant
David J. West, a TIBCO director (Pl.’s Ex. 7 (“West Dep.”)); (ii) James F. Ford, a
principal and the Chief Operating Officer of Vista Equity Partners (Pl.’s Ex. 5 (“Ford
Dep.”)); and (iii) Pawan Tewari, a Goldman managing director assigned to the TIBCO
engagement (Pl.’s Ex. 6 (“Tewari Dep.”)).
2
Am. Compl. ¶ 8.
4
subsidiary, Defendant Balboa Merger Sub, Inc., a Delaware corporation. For simplicity, I
refer to these three defendants collectively as “Vista.”
Defendant Goldman is an investment bank. It had been TIBCO’s financial advisor
before the Board initiated the sale process. In September 2014, a special committee
formed to manage the sale process hired Goldman to act as its financial advisor. For its
advisory services, Goldman stands to earn a percentage of the aggregate consideration to
be paid in the Merger. According to the proxy statement, this equates to a transaction fee
of approximately $47.4 million. 3 The Company paid Goldman $500,000 upon retainer,
and the remainder of Goldman’s fee (currently 98.9%) is contingent upon closing of the
Merger.
Plaintiff Paul Hudelson (“Plaintiff”) has been a TIBCO stockholder at all relevant
times. Plaintiff brings this lawsuit individually and on behalf of a class of all TIBCO
stockholders, excluding defendants and their affiliates, during the period from September
26, 2014, through the present.
B. The Company Receives Initial Indications of Interest in an Acquisition
During the first half of 2014, several financial sponsors (i.e., private equity firms)
contacted Ranadivé, TIBCO’s CEO, to indicate their interest in potential strategic
transactions with the Company. The suggested transactions included an acquisition and a
capital raise. At the time, the Board largely did not pursue these inquiries. 4
3
TIBCO Ex. 1 (“Proxy”) at 51.
4
Id. at 28.
5
On June 3, 2014, TIBCO pre-announced its financial results for the second quarter
of 2014, which were lower than Wall Street estimates for the Company’s performance.
On June 6, 2014, the Board held a special meeting to discuss the Company’s financial
outlook, as well as the possibility that potential acquirers may be interested in the
Company. Representatives of Goldman attended the meeting and gave a presentation on
TIBCO’s general position in the market and its strategic alternatives. 5
On July 11, 2014, at a special meeting, the Board instructed Goldman to “engage
in a comprehensive review of the strategic alternatives available to TIBCO.” 6 On July
29, 2014, at another special meeting, the Board decided to explore a possible sale of the
Company. The Board directed that the Company contact some of the potential acquirers
who had previously expressed their interest. 7
On August 15, 2014, the Company received two preliminary, non-binding
indications of interest. One financial sponsor indicated its interest in acquiring TIBCO
for between $20.00 and $21.00 per share. The other financial sponsor (“Sponsor B”)
indicated its interest in acquiring TIBCO for between $24.00 and $25.00 per share. 8
5
Id.
6
Id. at 29.
7
Id.
8
Id. at 30.
6
C. The Board Forms the Special Committee to Manage the Sale Process
On August 16, 2014, the Board held a special meeting with Goldman
representatives in attendance. The Board resolved (i) to engage in a further review of the
Company’s available strategic alternatives; and (ii) to form the Special Committee for
this purpose. The Special Committee was formed for the sake of efficiency to permit a
smaller group of outside directors living in the same time zone to explore these
alternatives. 9 It consisted of directors Caldwell, Dunn, and West. The Special
Committee was authorized to engage advisors and was charged with “review[ing] all
strategic alternatives available to TIBCO and . . . mak[ing] a recommendation to the
Board of Directors regarding a course of action.” 10
On August 18, 2014, the Special Committee held its first meeting. By this time,
several potential acquirers already had expressed interest in the Company. The Special
Committee engaged (i) Wilson Sonsini Goodrich & Rosati, P.C. (“Wilson Sonsini”),
which had been counsel to the Board, as its legal advisor; and (ii) Goldman as its
financial advisor. The Special Committee directed Goldman to contact a list of potential
acquirers. 11
9
West Dep. 14-15.
10
Proxy at 30.
11
Id. at 30-31. Goldman apparently already had been preparing certain materials for
TIBCO. One week before the Special Committee’s August 18 meeting, a Goldman
employee working on a TIBCO assignment was asking about the “best practice for
including restricted stock in the share count.” Pl.’s Ex. 8.
7
Goldman’s engagement with the Special Committee was later memorialized in a
September 1, 2014, engagement letter. The engagement letter included various
disclaimers, including that Goldman would be entitled to “rely upon and assume the
accuracy and completeness of all of the financial . . . and other information provided by”
TIBCO. Goldman received a $500,000 upfront payment as a credit towards a potential
transaction fee, which is equal to a progressive percentage of the aggregate consideration
paid to acquire TIBCO, and is payable upon closing of the transaction. Goldman’s base
fee is 1% of the aggregate consideration. 12
The negotiations between the Company and potential acquirers, which now
included Vista, were generally conducted through Goldman. 13 In late August 2014, the
Special Committee instructed Goldman to inform all previously contacted parties to
submit their preliminary indications of interest by August 30, 2014.
On August 30, 2014, Vista submitted a preliminary, non-binding indication of
interest for “an all-cash transaction at $23.00 to $25.00 per share of common stock and
common stock equivalents.” 14 Vista came to this indicative range, as it would with its
subsequent bids, in part by determining the maximum price it was willing to pay based on
“the return objectives [its] looking for for [its] investors.” 15 This initial proposal, unlike
12
Pl.’s Ex. 9 at TIBCOM00000006-07.
13
West Dep. 52-53.
14
Vista Ex. 7 at VISTA0000595.
15
Ford Dep. 19.
8
Vista’s subsequent bids, included an express assumption about the approximate number
of shares of outstanding common stock and stock-based awards to be acquired. 16
On September 3, 2014, TIBCO issued a press release announcing the formation of
the Special Committee and its review of the Company’s strategic alternatives. 17
D. Goldman Provides Information about TIBCO’s Capital Structure to
the Two Highest Bidders
In August and September 2014, Goldman discussed an acquisition of the
Company with twenty-four potential acquirers: fourteen strategic buyers and ten financial
sponsors. Some of those potential acquirers were identified by TIBCO or Goldman;
others had contacted the Company in response to its announcement on September 3.18
Eventually, two serious bidders emerged: Vista and Sponsor B.
Vista and Sponsor B were the only parties that received access to TIBCO’s data
room, which the Company had established to facilitate ongoing due diligence. 19 The data
room contained certain information about the Company’s capitalization. 20 In late August
2014, these bidders sought additional information about TIBCO’s share count—
16
Vista Ex. 7 at VISTA0000595.
17
Proxy at 33.
18
Id. at 31, 33.
19
Tewari Dep. 44.
20
Id. 45-46.
9
specifically, the number of fully diluted shares that would need to be acquired in a
merger. 21
TIBCO prepared an initial spreadsheet reflecting the Company’s share count as of
August 15, 2014 (the “First Cap Table”). 22 Around August 29, 2014, after receiving
approval from the Company, 23 Goldman provided the First Cap Table to the bidders. 24
The First Cap Table did not list the number of fully diluted shares—it was up to
the bidders to compute that number. 25 Rather, the First Cap Table (i) listed the total
number of shares of common stock outstanding (163,890,919) and (ii) contained specific
line items for the number of options and award shares outstanding, which were totaled
separately. One of these line items stated that there were approximately 4.3 million
unvested restricted shares outstanding. As became known later, but could not be
determined from the face of the First Cap Table (or from subsequent versions discussed
21
Goldman Ex. 5.
22
Id. at TIBCOM00033406.
23
Goldman Ex. 7.
24
Goldman Ex. 8.
25
It appears that a fully diluted share count was not provided because that number is
partly a function of the per-share consideration. That is, as the per-share offer price
increases, the amount of proceeds to be received by the holders of in-the-money options
also increases and, thus, the number of share equivalents necessary to cover the in-the-
money value of the options increases as well. For this reason, when Goldman provided
the First Cap Table (and the subsequent cap tables described later), it also provided data
on the exercise prices of the outstanding options and stock-based awards. In this opinion,
I use “fully diluted shares” to refer to the sum of the share equivalent of the outstanding
options and other stock-based awards at the offered consideration (based on the weighted
average exercise price) plus the outstanding shares of common stock.
10
below), those 4.3 million unvested restricted shares were also included in the outstanding
common stock total. Thus, these restricted shares were, in effect, being “double counted”
as outstanding award shares and as outstanding common shares. 26 This double-counting
of unvested restricted shares is at the heart of TIBCO’s and Vista’s initial
misunderstanding about the total purchase price of the Merger.
On September 11, 2014, the Special Committee instructed Goldman to request
final proposals from the bidders by September 24, 2014. 27 In mid-September 2014, Vista
and Sponsor B requested updated share count information from Goldman. 28 TIBCO
provided to Goldman an updated spreadsheet reflecting the Company’s share count as of
September 19, 2014 (the “Second Cap Table”) and noted that TIBCO was “continu[ing]
to work through this” information. 29 The Second Cap Table contained the same error as
the First Cap Table, i.e., the unvested restricted shares (now approximately 4.2 million)
were listed on a line item as a component of the outstanding options and awards and
simultaneously were included in the total common stock outstanding (now 163,851,917
26
Goldman Ex. 5 at TIBCOM00033406.
27
Proxy at 34.
28
Goldman Ex. 10.
29
Goldman Ex. 11 at TIBCOM00045621.
11
shares) without any notation about this double-counting on the document. 30 Goldman
sent the Second Cap Table to the bidders on September 21. 31
On September 23, 2014, Sponsor B submitted a proposal to acquire TIBCO for
$21.00 per share. 32 On September 24, Vista submitted a bid that contemplated “an all-
cash transaction at $23.00 per share of common stock and common stock equivalents.” 33
Vista’s $23.00 per share bid letter did not reference any total purchase price and, unlike
its initial indication of interest, did not express any assumption about the approximate
number of shares of outstanding common stock and stock-based awards to be acquired. 34
When the Special Committee met to review the acquisition proposals, it compared them
on the basis of the consideration per share. 35
In the afternoon of September 25, 2014, Sponsor B raised its proposal to $22.50
per share. Later on September 25, Goldman requested that Vista and Sponsor B submit
their final proposals by early in the afternoon the following day. 36
On the morning of September 26, 2014, the Vista investment committee met to
discuss the maximum bid that Vista could make without needing further committee
30
Id. at TIBCOM00045625.
31
Goldman Ex. 12.
32
Proxy at 35.
33
Vista Ex. 5 at VISTA0001880.
34
Id.
35
See, e.g., TIBCO Ex. 11.
36
Proxy at 35.
12
approval. In acquiring companies, Vista focuses on “cash on cash returns”—that is, “the
equity invested, what multiple of equity [is] returned at the end of the investment.” 37 The
investment committee set the ceiling for the TIBCO auction at $24.25 per share, and the
committee authorized an offer of $24.10 per share. 38 Based on Vista’s understanding of
TIBCO’s share count from the Second Cap Table, the $24.25 per share maximum
reflected a total equity value of $4.238 billion and, including the assumption of TIBCO’s
approximately $68 million in net debt, an enterprise value of $4.305 billion. 39 According
to Plaintiff, the maximum total purchase price of $4.305 billion was equivalent to Vista’s
desired cash-on-cash return rate. 40
By midday on September 26, and before either Vista or Sponsor B submitted a
final bid, someone at TIBCO discovered that the share count information in the Second
Cap Table was incorrect. 41 Specifically, the Second Cap Table did not take into account
approximately 3.7 million shares in the Company’s Long Term Incentive Plan (“LTIP”),
and thus understated the common stock outstanding by approximately 3.6 million shares
(after subtracting approximately 100,000 LTIP shares that would be withheld for tax
37
Ford Dep. 20.
38
Id. 201-03.
39
Pl.’s Ex. 11 at VISTA0006766.
40
Tr. of Oral Arg. 23, 26.
41
Tewari Dep. 82-83.
13
purposes). TIBCO brought this issue to Goldman’s attention, and Goldman informed the
bidders that the Company was revising its share count data. 42
After hearing about this issue, Vista requested more information from Goldman
about TIBCO’s share count data. 43 Vista wanted confirmation that it had the most up-to-
date data, which are critical components in Vista’s “analysis on what the equity value of
the business is.” 44 As Vista’s Ford testified, the share count data “will, depending on the
share price, change what the equity required to buy the business is.” 45
TIBCO, with Goldman’s assistance, 46 revised the Second Cap Table to reflect the
Company’s share count as of September 25, 2014 (the “Final Cap Table”). The Final
Cap Table identified the approximately 3.6 million LTIP shares as a separate line item.
But, the Final Cap Table still failed to note that the unvested restricted shares (which now
totaled 4,147,144 shares) that were listed as a separate line item also were included in the
total amount of common stock outstanding of 163,851,917 shares (excluding the LTIP
shares). 47 Thus, the Final Cap Table contained the same double-counting error as the
First and Second Cap Tables. Other than addressing the admittedly “large change” for
42
Id.
43
Pl.’s Ex. 13.
44
Ford Dep. 65.
45
Id. 71.
46
Tewari Dep. 86-88, 90.
47
Goldman Ex. 15 at GS00040373.
14
the LTIP shares, Goldman apparently did not confirm that the share count data listed in
the Final Cap Table was accurate. 48 Goldman sent the Final Cap Table to the bidders. 49
Shortly after the Final Cap Table was provided to the bidders, TIBCO’s counsel
circulated to Goldman and Vista’s counsel a draft of a representation about the
Company’s capitalization (the “Draft Cap Rep”) to be included in the negotiated merger
agreement. 50 The Draft Cap Rep stated that there were 163,851,917 outstanding shares
of TIBCO common stock, and—unlike any of the cap tables—it expressly stated that this
total included the 4,147,144 unvested restricted shares. 51 TIBCO employees exchanged
internal emails confirming the accuracy of this aspect of the Draft Cap Rep. 52
E. Vista Relies on the Final Cap Table in Making its Final Bids
Vista incorporated the share count data from the Final Cap Table into its internal
valuation analysis. 53 Based on this updated analysis, Vista submitted an offer for “an all-
cash transaction at $23.85 per share of common stock and common stock equivalents.” 54
Using the share data in the Final Cap Table, the $23.85 per share offer translated into an
48
Tewari Dep. 92 (“Q. Did you raise any other questions with the group about the share
count? A: I – not that I recall. Q. Did anyone else on the Goldman team raise any other
questions about the share count? A. Not that I recall.”).
49
Pl.’s Ex. 13.
50
Goldman Ex. 6 at GS00035976.
51
Id. at GS00035980.
52
TIBCO Ex. 20.
53
Ford Dep. 92.
54
Goldman Ex. 16 at GS00010186.
15
implied equity value of approximately $4.217 billion. 55 This $4.217 billion figure was
approximately $21 million less than the ceiling authorized by Vista’s investment
committee earlier that day.
As with its previous bid letter, Vista’s bid letter for the $23.85 per share offer did
not refer to a total purchase price or express any assumption about the approximate
number of shares of outstanding common stock and stock-based awards to be acquired.
Vista attached to its bid letter a markup of the merger agreement. 56 This draft of the
merger agreement included the Draft Cap Rep that accurately stated that 4,147,144
unvested restricted shares were included in TIBCO’s 163,851,917 shares of outstanding
common stock. 57
Around the time of Vista’s $23.85 per share bid, Sponsor B bid $23.75 per share. 58
During the afternoon of September 26, 2014, Goldman told Vista and Sponsor B that
their bids “were not materially differentiated.” Goldman then asked the two bidders to
submit revised final proposals by that evening, and for their revised proposals to
contemplate an improved price per share and a lower termination fee. 59
55
Pl.’s Ex. 12 at VISTA0006940.
56
Goldman Ex. 16 at GS00010187.
57
Id. at GS00010352-53.
58
Proxy at 36.
59
Id.
16
In response to Goldman’s request, several of Vista’s principals met and discussed
what to bid. Vista raised its offer from $23.85 per share to “$24.00 per share of common
stock and common stock equivalents.” 60 Vista’s Ford testified that, in coming to the
$24.00 per-share figure, the firm’s principals and the deal team “didn’t look at documents
or analyses” but instead “what [they] thought competitively would win the auction.” 61
Consistent with Vista’s past bids, Vista’s bid letter for the $24.00 per share offer did not
refer to a total purchase price or express any assumption about the approximate number
of shares of outstanding common stock and stock-based awards to be acquired.
Vista’s $24.00 per share bid, based on the Final Cap Table, implied an aggregate
equity value of $4.244 billion and an enterprise value of $4.31 billion. Plaintiff notes that
this enterprise value was only modestly higher than the $4.305 billion ceiling set earlier
that day by Vista’s investment committee (when Vista was relying on the Second Cap
Table). The equivalent enterprise value, according to Plaintiff, would have required
Vista to bid “an awkward $23.97 per share.” 62 Based on the accurate number of fully
diluted shares, an enterprise value of $4.31 billion and an aggregate equity value of
$4.244 billion would have translated to a per-share value of $24.58, according to
Plaintiff.63
60
Vista Ex. 3 at VISTA0003025.
61
Ford Dep. 88, 95.
62
Pl.’s Br. 14.
63
Pl.’s Ex. 31 at Ex. B. $24.00 per share × 176,817,153 shares = $4,243,611,672
aggregate equity value. $4,243,611,672 aggregate equity value ÷ 172,670,009 shares =
17
Ford testified that Vista’s $24.00 per share bid represented the “highest price per
share” that Vista was willing to pay. 64 Vista also offered to reduce the termination fee in
the draft merger agreement to 2.75% and to maintain the limited guaranty at 6.5%. 65
Both the termination fee and the limited guaranty were being negotiated as a percentage
of the implied equity value of the transaction.
In contrast to Vista, Sponsor B declined to increase its last offer of $23.75 per
share. It also declined the offer to have additional time to consider improving its bid. 66
Late in the evening of September 26, Vista learned from Goldman that its $24.00
per share bid was in the lead. Vista’s and TIBCO’s counsel then worked to finalize the
merger agreement that they had been negotiating.
Around this time, Vista decided to change how it would finance the acquisition.
Specifically, Vista changed its funding from a combination of cash and debt to be all
cash. 67 A few minutes after midnight on September 27, and before the merger agreement
was signed, Vista submitted a revised draft of its Equity Commitment Letter to TIBCO.
$24.576 per share. Plaintiff refers to this figure as both $24.57 and $24.58. In this
opinion, I use the rounded up figure of $24.58 per share.
64
Ford Dep. 96.
65
Pl.’s Ex. 17; Tewari Dep. 145-46. The limited guaranty is a cap on Vista’s monetary
liability for any breaches of the Merger Agreement or any incorporated agreements.
66
Proxy at 36.
67
West Dep. 88-89.
18
The Equity Commitment Letter reflected Vista’s commitment to fund “an aggregate
amount up to $4,859,000,000” to acquire TIBCO. 68
Attached to the Equity Commitment Letter was a spreadsheet “showing the
calculations used to arrive at the amount of the commitment.” 69 This spreadsheet
contemplated that Vista would pay $24.00 per share to acquire 176,817,153 fully diluted
shares for a total purchase price of $4,243,611,662. 70 The total number of fully diluted
shares was calculated based on the Final Cap Table and, thus, double-counted the number
of unvested restricted shares. 71
Vista’s Ford testified that the approximately $4.244 billion reflected in the Equity
Commitment Letter spreadsheet was “the equity value that we expected we were paying
for the business.” 72 Although no presentation to Vista’s investment committee had
specifically reflected a calculation of $24.00 per share times the number of fully diluted
shares in the Final Cap Table, the $4.244 billion figure was “consistent” with Vista’s
“expectation” as to the equity price that it was agreeing to pay to acquire TIBCO. 73
68
Pl.’s Ex. 21 at GS00011528 (emphasis added).
69
Id. at GS00011526.
70
Id. at GS00011572.
71
Pl.’s Ex. 28 at VISTA0004329.
72
Ford Dep. 128.
73
Id. 136.
19
F. TIBCO Accepts Vista’s Offer
On September 27, 2014, the Special Committee and the Board met concurrently
during a telephonic meeting to review the acquisition proposals. The meeting began at
approximately 5:00 a.m. (California time). 74 Representatives of Goldman were in
attendance and reviewed the financial terms of the competing proposals with the Board. 75
The minutes reflect that the Board compared the two proposals on a per-share basis:
Vista at $24.00 per share and Sponsor B at $23.75 per share. 76 Wilson Sonsini and
Goldman then reviewed the terms of Vista’s offer.
Goldman’s presentation on the fairness of Vista’s final offer was based on the
inaccurate share count data from the Final Cap Table. Specifically, Goldman had
calculated that, at $24.00 per share, and assuming (incorrectly) that there were
approximately 176.8 million fully diluted shares, Vista’s offer implied an equity value of
approximately $4.244 billion and an enterprise value of approximately $4.311 billion.77
Goldman’s fairness presentation also noted that Vista’s offer of $24.00 per share
represented a 26.3% premium over the trading price of TIBCO stock ($19.00) on
September 23, the last trading day prior to news reports about a potential transaction. 78
74
West Dep. 43.
75
Vista Ex. 4.
76
Id. at TIBCOM00000464.
77
Pl.’s Ex. 18 at TIBCOM00000348, 358.
78
TIBCO Ex. 26 at GS00000022.
20
TIBCO’s West testified that his focus during Goldman’s presentation was on the
$24.00 per share figure, 79 but he also acknowledged that he understood that the $4.311
billion implied enterprise value and the $4.244 billion implied equity value—which were
listed in various places in the board book 80—reflected $24.00 per share times the
assumed share count. 81 That is, he understood the math that Vista’s offer equaled an
enterprise value of $4.311 billion. 82
At the end of its presentation, Goldman gave its opinion that $24.00 per share was
fair, from a financial point of view, to TIBCO stockholders. 83 Based on its evaluation of
Vista’s offer, the Special Committee unanimously voted in favor of the Merger. The
Board then unanimously approved the Merger based, in part, on its “belief that the $24.00
cash per share is the best price reasonably attainable for stockholders.” 84 There is no
reference to any discussion of any total purchase price in the minutes of the September 27
Board meeting. The Board further resolved to recommend that TIBCO stockholders
approve the Merger. 85
79
West Dep. 45-49.
80
Pl.’s Ex. 18 at TIBCOM00000348, 358.
81
West Dep. 46, 49-50.
82
Id. 54-55.
83
Goldman Ex. 20 at GS00000014-16.
84
Vista Ex. 4 at TIBCOM00000466.
85
Id. at TIBCOM00000467.
21
G. Key Terms of the Merger Agreement
Later on September 27, 2014, TIBCO and Vista executed the Agreement and Plan
of Merger (the “Merger Agreement”), which is governed by Delaware law. 86 The Merger
Agreement did not list a total purchase price or an implied equity value. 87 Instead, the
Merger Agreement specifically provided that, at the effective time of the Merger, each
share of TIBCO common stock will be “automatically converted into the right to receive
cash in an amount equal to $24.00, without interest.” 88
The Merger Agreement included a capitalization representation (the “Cap Rep”)
that had been updated from the earlier Draft Cap Rep. The Cap Rep stated that there
were 163,851,917 outstanding common shares of TIBCO common stock, a figure that
expressly included the 4,147,144 unvested restricted shares. 89 The Merger Agreement
also accurately listed the other outstanding options and stock-based awards. The Merger
Agreement thus accurately provided the share count data needed for Vista to calculate
that, based on the $24.00 per share price, it would need to acquire 172,670,009 fully
86
Vista Ex. 1 § 9.9.
87
As Plaintiff’s counsel acknowledged, this is typical in an agreement for the acquisition
of a public company. Pl.’s Br. 7.
88
Merger Agreement § 2.7(a)(ii).
89
Id. § 3.7(a)-(b).
22
diluted shares in the Merger (not the 176,817,153 fully diluted shares that had been
contemplated in the Equity Commitment Letter spreadsheet). 90
The Merger Agreement provides a termination right to Vista in the event that the
Cap Rep is inaccurate at closing and that any inaccuracies, individually or in the
aggregate, would require Vista to pay more than $10 million above the product of $24.00
per share multiplied by the number of fully diluted shares derived from the Cap Rep. 91
This $10 million “cap ceiling” reflects the reality that, for a public company, the share
count may change between signing and closing. For example, during this period, options
or other stock-based compensation may be granted to newly hired employees or forfeited
by terminated employees. 92
Certain terms of the Merger Agreement were negotiated by TIBCO and Vista as a
percentage of the assumed equity value of $4.244 billion. For example, the final
termination fee was negotiated as 2.75% of the assumed $4.244 billion equity value, 93
90
There were 4,641,716 outstanding options at a weighted average exercise price of
$13.41. At an offer price of $24.00 per share, the share equivalent of these options is
2,282,165 shares. There were also 2,934,638 shares in other unvested stock-based
awards and 3,601,289 LTIP shares (after subtracting shares withheld for tax purposes).
Thus, the total number of fully diluted options and awards at an offer price of $24.00
equated to 8,818,092 (2,282,165 + 2,934,638 + 3,601,289 = 8,818,092). When added to
the total number of outstanding common shares, this yields a fully diluted number of
shares of 172,670,009 (163,851,917 + 8,818,092 = 172,670,009).
91
Id. §§ 7.2(a)(iii), 8.1(e).
92
Ford Dep. 59.
93
Tewari Dep. 145-46; Pl.’s Ex. 17.
23
which is represented in the Merger Agreement as $116.7 million. 94 Similarly, TIBCO’s
limited guaranty to Vista under the Merger Agreement also was negotiated as “a percent
figure applied to the transaction value.” 95 The $275.8 million limited guaranty96
represents 6.5% of the $4.244 billion implied equity value.
The Merger Agreement contains a “drop dead” date of March 27, 2015, after
which Vista can terminate the agreement if the Merger has not closed. 97
H. TIBCO, Vista, and Goldman Make Statements that the Merger Implies
a $4.3 Billion Enterprise Value
On September 29, 2014, TIBCO issued a press release announcing the Merger.
The press release stated, in relevant part:
Under the terms of the agreement, TIBCO stockholders will receive $24.00
per share in cash, or a total of approximately $4.3 billion, including the
assumption of net debt. . . . The total enterprise value of the transaction
represents more than 18 times TIBCO’s earnings before interest,
depreciation and amortization (EBITDA) for the 12 months ending August
31, 2014. 98
Representatives of Vista and Goldman reviewed the release before it was issued. 99 The
Board relied on Goldman to calculate the implied enterprise value, which, along with the
18x EBITDA multiple, was based on the incorrect share data from the Final Cap Table.
94
Merger Agreement § 8.3(b).
95
Tewari Dep. 141.
96
Merger Agreement § 8.3(f)(i).
97
Id. § 8.1(c).
98
Pl.’s Ex. 1.
99
Tewari Dep. 109; Ford Dep. 137-38.
24
TIBCO, Vista, and Goldman all generally assumed that the enterprise value of the
Merger was approximately $4.3 billion. 100
After signing the Merger Agreement, Vista made several statements reflecting its
expectation that it would need to pay approximately $4.3 billion to acquire TIBCO. For
example, in October 2014, Vista prepared presentations to give to several ratings
agencies in its efforts to obtain debt financing for the Merger. Drafts of these
presentations, including those dated October 9 and 14, stated that Vista was to acquire
TIBCO “for $4.3b.” 101 Only after Vista learned of the error in the Final Cap Table did it
revise the ratings agency presentation “to reflect what is now a $4.2b transaction.” 102
Goldman likewise thought that the implied enterprise value of the Merger was
$4.3 billion. It prepared an internal “case study” on the Merger for its investment
banking division to use for marketing purposes. The case study calculated the implied
equity value as $4.244 billion, based on the incorrect Final Cap Table, and it reflected
that the Merger implied an enterprise value for TIBCO of approximately $4.3 billion. 103
I. The Error in the Final Cap Table is Discovered
On Sunday, October 5, 2014, TIBCO’s counsel circulated a draft of the proxy
statement for a special meeting of TIBCO’s stockholders to vote on the Merger. Upon
100
West Dep. 79-80; Ford Dep. 139-40; Tewari Dep. 115.
101
Pl.’s Ex. 25 at TIBCOM00023128; Pl.’s Ex. 27 at VISTA0000156.
102
Pl.’s Ex. 29.
103
Pl.’s Ex. 22.
25
reviewing the draft, a Goldman employee commented in an email that “[t]he aggregate
value calculation doesn’t look right” 104 compared to the number that had been used in
Goldman’s analysis. 105 Just over an hour after receiving the draft, Goldman emailed
Wilson Sonsini to discuss, in light of the data in the Final Cap Table, whether the “equity
value and aggregate value should come out to a different number.” 106 The record does
not reflect that anyone had identified this error before Goldman raised it on October 5. 107
After a series of conversations between TIBCO and Goldman, the magnitude of
the error eventually was discovered—i.e., the Final Cap Table, and everything based on
the information in that document, had caused the number of fully diluted shares to be
overstated by double-counting the 4,147,144 unvested restricted shares. The decrease in
the number of the fully diluted shares, at the $24.00 per share offer, had the effect of
reducing the total implied equity consideration by about $100 million, from
approximately $4.244 billion to approximately $4.144 billion. 108
104
Pl.’s Ex. 24.
105
Tewari Dep. 153.
106
Goldman Ex. 21 at GS00039162.
107
Goldman contends that it would have been “nearly impossible” for anyone to have
discovered the error based on TIBCO’s public filings, not only because those earlier
public numbers were stale, but also because “the missing LTIP shares, which were
roughly equal to the restricted shares, masked the double-counted restricted shares.”
Goldman’s Br. 9 n.4.
108
4,147,144 × $24.00 = $99,531,456.
26
J. The Board Meets to Discuss What to Do
On October 11, 2014, after the Board was informed of the error, the Board
convened a special meeting to review the situation. Representatives of Goldman attended
this meeting. The minutes reflect the manner in which Goldman “described” the “error”
in its initial fairness opinion presentation:
The representatives of Goldman Sachs described for the Board an error
related to the amount of shares outstanding that was contained in Goldman
Sachs’ fairness opinion presentation delivered to the Board on September
27, 2014. Referring to materials previously provided to the Board, the
representatives of Goldman Sachs then reviewed with the Board the impact
on each of the amounts as a result of this error and what the amount should
have been had the correct outstanding share number been used. The Board
discussed this matter with the representatives of Goldman Sachs. 109
Defendant West did not recall that Goldman specifically explained that the error would
lead to an approximately $100 million reduction in the amount expected to be paid to
TIBCO stockholders for their equity in the Company. 110 But, Goldman’s presentation
book for this meeting did specifically note the key economic terms in the transaction that
had changed due to the corrected share count. 111 For example, the implied enterprise
value decreased to $4.212 billion, and the last twelve month EBITDA multiple decreased
to 17.6x. After a discussion with the Board, Goldman confirmed that these adjustments
did not change its opinion that the $24.00 per share offered in the Merger was still fair,
109
Pl.’s Ex. 26 at TIBCOM00000566.
110
West Dep. 103.
111
TIBCO Ex. 34 at TIBCOM00000376, 385-86.
27
from a financial point of view, to TIBCO’s stockholders, even at the lower total equity
consideration of $4.144 billion. 112
After Goldman concluded its presentation, the Board met in executive session
along with members of the Company’s management and representatives of Wilson
Sonsini to discuss the issues raised by Goldman. According to the minutes, the Board
ultimately “concluded that the revised analysis presented by Goldman Sachs at the
meeting did not impact the Board’s recommendation that stockholders adopt the merger
agreement.” 113
Outside of this October 11 Board meeting, the preliminary record suggests a lack
of effective communication between Goldman and the Board about the overstated share
count in the Final Cap Table. According to the deposition testimony of Goldman’s
Pawan Tewari, no member of the Board asked Goldman: (a) how the overstated share
count error was made; (b) if the error was Goldman’s fault or the Company’s fault; (c)
whether Goldman had discussed the overstated share count with Vista; or (d) whether
Vista should or would pay $4.244 billion in equity consideration in the Merger. 114
On October 15, 2014, a Vista representative informed Goldman that, in fact, Vista
had relied on the information presented in the Final Cap Table “for the calculation of
112
Pl.’s Ex. 26 at TIBCOM00000566.
113
Id. at TIBCOM00000567.
114
Tewari Dep. 167-69.
28
equity value” in its final $24.00 per share offer. 115 According to the testimony of
TIBCO’s West, Goldman did not inform the Board that Vista had admitted to using the
incorrect share count data in the Final Cap Table when Vista valued TIBCO’s equity and
submitted its $24.00 per share bid. 116 Nor did Goldman ever provide him, or, to his
knowledge, anyone else on the Board, a written explanation as to how the error had
occurred. 117
Vista’s team, for its part, claims it had mixed emotions after it learned of the share
count error and, soon thereafter, that the error cut in its favor. Ford testified that one of
his reactions was “pleasure because, you know, we were potentially buying the company
for less than we had expected at that point in time.” 118
K. The Overstated Share Count Error Becomes Public
On October 16, 2014, TIBCO filed its preliminary proxy statement for the Merger.
The preliminary proxy disclosed information about the overstated share count in the
“Background of the Merger” section. It also disclosed that, based on the accurate share
115
Pl.’s Ex. 28.
116
West Dep. 133-34. At oral argument, Goldman represented that its counsel for the
TIBCO engagement told the Board’s counsel about this critical information the same day
Goldman learned about it. Tr. of Oral Arg. 130-31. There is nothing in the record to
support this assertion. TIBCO and the Board vehemently disagree. They assert that
Goldman did not bring this information to the Board’s attention and that the Board did
not become aware of it until discovery in this litigation. Id. 76.
117
West Dep. 147-48.
118
Ford Dep. 172. He was also “curious” about how this error could have happened, and
he also felt “a little frustration” in knowing that shareholder litigation about the
overstated share count would likely occur. Id. 172-73.
29
count, the $24.00 per share consideration implied an enterprise value of approximately
$4.2 billion, or approximately $100 million less than the $4.3 billion that the Company
initially announced. 119 The financial press also quickly picked up on this issue,
prompting this lawsuit. 120
L. The Board’s Response to the Overstated Share Count
On October 23, 2014, the Board held a telephonic meeting. A contingent of
Wilson Sonsini attorneys dialed in to the call, but Goldman’s representatives did not
attend. In addition to discussing matters related to the proxy statement, the Board
considered what, if anything, TIBCO should do in light of the overstated share count
issue. 121
At this time, according to director West, “[t]here wasn’t certainty about how the
error had occurred.” 122 Additionally, as reflected in the minutes, “it was still unknown if
either Vista or Sponsor B used an incorrect share count in arriving at their per share bids”
119
See TIBCO Software Inc., Preliminary Proxy Statement (Schedule 14/A), at 37-38
(Oct. 16, 2014).
120
See, e.g., David Gelles, An Oops for Goldman Sachs in Its Advice on Vista-Tibco
Merger, N.Y. TIMES: DEALBOOK, (Oct. 17, 2014, 12:36 PM),
http://dealbook.nytimes.com/2014/10/17/an-oops-for-goldman-sachs-in-its-advice-on-
vista-tibco-merger/; Gillian Tan, Spreadsheet Mistake Costs Tibco Shareholders $100
Million, WALL ST. J.: MONEYBEAT, (Oct. 16, 2014, 7:01 PM),
http://blogs.wsj.com/moneybeat/2014/10/16/spreadsheet-mistake-costs-tibco-
shareholders-100-million/.
121
Pl.’s Ex. 30.
122
West Dep. 122.
30
submitted on September 26. 123 That is, the record reflects that the Board still had not
been made aware of the information Goldman had learned over one week earlier, on
October 15, that Vista had relied on the Final Cap Table in formulating its $24.00 per
share bid or how the error had come about. 124
According to the minutes, the Board weighed four courses of action: (i) seek to
renegotiate the per-share purchase price with Vista; (ii) pursue the matter further with
Goldman; (iii) reconsider its recommendation in favor of the Merger; or (iv) proceed with
the Merger. Ultimately, the Board decided to proceed with the Merger on the terms set
forth in the Merger Agreement.
The Board decided not to ask if Vista would be willing to pay an aggregate
purchase price of $4.244 billion ($24.58 per share times the accurate fully diluted share
count). According to the minutes, although the Board acknowledged that the termination
fee and limited guaranty terms of the Merger Agreement were negotiated based on the
implied equity value derived from the $24.00 per share consideration, the Board did not
believe that the Merger Agreement provided “a basis for the Company to force Vista to
increase the per share price paid to stockholders or otherwise change the agreement.” 125
West testified about the Board’s evaluation of this option, as follows:
123
Pl.’s Ex. 30 at TIBCOM00047691 (emphasis added).
124
West Dep. 123 (“But it was uncertain whether – uncertain, you know, whether or not
Vista or [Sponsor B] had bid on a per-share basis, on an enterprise value basis. We were
unsure, and at that point we had – you know, we had to decide what to do with that
information.”).
125
Pl.’s Ex. 30 at TIBCOM00047690.
31
We had a number of options available to us. One of them was to go
back to Vista and – again, with context, not really knowing what Vista
and/or [Sponsor B] may or may not have done in terms of negotiation and
not knowing what Goldman Sachs said, which is kind of where we were,
there was a capitalization table in the merger agreement that was correct in
terms of the number of shares; then there was apparently a spreadsheet that
may have been passed back and forth. It was unclear to us who used what
data, and so at that point – that’s the starting point for us.
Based on that, you could speculate that maybe we could have gotten
more money. Maybe we would – might have at the time; we don’t know.
So one of the options, too, is just to go back and try to get more money
from Vista. We had the opportunity to do that, but based on the way the
merger agreement was written, we essentially would have had to almost
start over again. There was nothing that would compel them to do it. That
was one option we talked about. 126
The Board ultimately never approached Vista. 127
During the October 23 Board meeting, Wilson Sonsini reminded the TIBCO
directors of their fiduciary duties in the sale of control context to, in language evoking
Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 128 “seek the best price reasonably
obtainable for stockholders.” 129 At the end of the meeting, the Board members each
“expressed [his or her] belief that the negotiations had been focused on a per share price.”
Each further stated his or her belief that “$24.00 per share appeared to be the highest
price achievable at the time of the negotiation.” 130 Thus, the Board decided to proceed
126
West Dep. 126-27.
127
Id. 118.
128
506 A.2d 173 (Del. 1986).
129
Pl.’s Ex. 30 at TIBCOM00047690.
130
Id. at TIBCOM00047691.
32
with the Merger for the consideration set forth in the Merger Agreement: $24.00 per
share, for an aggregate equity value of $4.144 billion.
On October 29, 2014, the Company scheduled a special meeting for stockholders
to vote on the Merger for December 3, 2014.
M. Procedural History
On October 6, 2014, the first of seven putative class action lawsuits challenging
the Merger was filed in this Court. On November 5, 2014, Plaintiff filed his initial
complaint. On November 8, 2014, I granted Plaintiff’s motion for consolidation and lead
counsel and his motion for expedited proceedings.
On November 12, 2014, Plaintiff moved for a preliminary injunction of the
TIBCO stockholder vote that is currently scheduled for December 3, 2014. On
November 16, 2014, Plaintiff amended his complaint. On November 21, 2014, I heard
oral argument on Plaintiff’s motion for a preliminary injunction.
III. LEGAL ANALYSIS
Plaintiff’s motion for a preliminary injunction seeks to enjoin the vote of TIBCO
stockholders on the Merger scheduled for December 3, 2014, “until a trial is held and a
decision [is] rendered on [Plaintiff’s] claim for the reformation of the merger agreement.”
Specifically, Plaintiff seeks to reform the Merger Agreement to provide for TIBCO
stockholders to receive $24.58 per share, rather than the current $24.00 per share.
Alternatively, although it was not evident from Plaintiff’s motion, he seeks to enjoin the
stockholder meeting based on an alleged breach of fiduciary duty concerning the Board’s
actions after it learned that the proposed Merger would not yield an equity value of
33
$4.244 billion. 131 Thus, I consider below whether either the reformation or fiduciary duty
claims provide a basis for entry of a preliminary injunction. I conclude that they do not.
A. Legal Standard
To obtain a preliminary injunction, Plaintiff must establish three elements: (i) a
reasonable probability of success on the merits; (ii) irreparable harm absent interim relief;
and (iii) that the balance of the equities favors the relief requested. 132 “This burden is not
a light one, and an ‘extraordinary remedy’ like a preliminary injunction ‘will never be
granted unless earned.’” 133 Although “[a] strong showing on one element may overcome
a weak showing on another element,” Plaintiff must still demonstrate all three
elements. 134
B. Plaintiff Has Not Demonstrated a Reasonable Probability of Success on
His Claim for Reformation of the Merger Agreement
Reformation “is an equitable remedy which emanates from the maxim that equity
treats that as done which ought to have been done.” 135 The Court of Chancery has
equitable jurisdiction to reform the terms of a written contract “in order to express the
131
See Tr. of Oral Argument 134-35.
132
See Revlon, Inc. v. MacAndrews & Forbes Hldgs., Inc., 506 A.2d 173, 179 (Del.
1986).
133
Wayne Cty. Empls.’ Ret. Sys. v. Corti, 954 A.2d 319, 329 (Del. Ch. 2008) (quoting
Lenahan v. Nat’l Computer Analysts Corp., 310 A.2d 661, 664 (Del. Ch. 1973)).
134
See Cantor Fitzgerald, L.P. v. Cantor, 724 A.2d 571, 579 (Del. Ch. 1998).
135
Interim Healthcare, Inc. v. Sherion Corp., 2003 WL 22902879, at *6 (Del. Ch. Nov.
19, 2003, revised Dec. 1, 2003) (quoting 27 Williston on Contracts § 70:19 (4th ed.
2003)).
34
‘real agreement’ of the parties involved.” 136 Reformation is not an equitable license for
the Court to write a new contract at the invitation of a party who is unsatisfied with his or
her side of the bargain; rather, it permits the Court to reform a written contract that was
intended to memorialize, but fails to comport with, the parties’ prior agreement. 137 As
Professor Williston explains:
It is not enough that the parties would have come to a certain agreement
had they been aware of the actual facts.
Reformation requires an antecedent agreement, which the written
instrument attempts to express. However, any mistake must have been in
the drafting of the instrument, not in the making of the contract. An
instrument will not be reformed due to a mere misunderstanding of the
facts, or a mistake as to an extrinsic fact which, if known, would probably
have induced the making of a different contract or no contract at all. If
there has been any misunderstanding between the parties, or a
misapprehension by one or both, so that there is no mutuality of assent,
then the parties have not made a contract, and neither will the court do so
for them. 138
136
Cerberus Int’l, Ltd. v. Apollo Mgmt., L.P., 794 A.2d 1141, 1151 (Del. 2002) (quoting
Colvocoresses v. W.S. Wasserman Co., 28 A.2d 588, 589 (Del. Ch. 1942)).
137
See Collins v. Burke, 418 A.2d 999, 1002-03 (Del. 1980) (“Reformation is not a
mandate to produce a reasonable result . . . . Rather, it is based on intention.”); see also
In re Estate of Justison, 2005 WL 217035, at *10 (Del. Ch. Jan. 21, 2005) (“The purpose
of reformation is to make an erroneous instrument express correctly the intent of, or the
real agreement between, the parties.”).
138
27 Williston on Contracts § 70:19, quoted in Interim Healthcare, 2003 WL 22902879,
at *7; see also Waggoner v. Laster, 581 A.2d 1127, 1135 (Del. 1990) (quoting 3
Pomeroy’s Equity Jurisprudence, § 870 (5th ed.)) (“Reformation is appropriate, when an
agreement has been made . . . as intended by all the parties interested, but in reducing
such agreement or transaction to writing, . . . through the mistake common to both
parties, . . . the written instrument fails to express the real agreement or transaction.”).
35
A claim for reformation must be proven by clear and convincing evidence. 139 As
the Delaware Supreme Court stated in Cerberus International, Ltd. v. Apollo
Management, L.P., the leading case on reformation under Delaware law, “the plaintiff
must show by clear and convincing evidence that the parties came to a specific prior
understanding that differed materially from the written agreement.” 140 The clear and
convincing evidence standard has been described as requiring “evidence which produces
in the mind of the trier of fact an abiding conviction that the truth of [the] factual
contentions are ‘highly probable.’” 141 This heightened requirement enables the Court to
compare the prior agreement and the executed contract in order to determine “exactly
what terms” need to be reformed. 142 It also “preserve[s] the integrity of written
agreements by making it difficult” to modify executed contracts. 143
Plaintiff contends that Vista and TIBCO specifically agreed to a transaction at
$4.244 billion in aggregate equity value. He argues that Vista decided to offer $24.00 per
139
Cerberus, 794 A.2d at 1152.
140
Id. at 1151-52.
141
Id. at 1151 (quoting In re Rowe, 566 A.2d 1001, 1003 (Del. Jud. 1989)).
142
See Collins, 418 A.2d at 1002 (emphasis added); see also Hob Tea Room v. Miller, 89
A.2d 851, 857 (1952) (“Unless there was a clear understanding with which the formal
contract conflicts, there is, of course, no comparative standard upon which to base a
reformation, and the contract as executed must stand.”).
143
See Joyce v. RCN Corp., 2003 WL 21517864, at *3 (Del. Ch. July 1, 2003); cf. ev3,
Inc. v. Lesh, -- A.3d --, 2014 WL 4914905, at *2 n.3 (Del. Sept. 30, 2014) (“Delaware
courts seek to ensure freedom of contract and promote clarity in the law in order to
facilitate commerce.”).
36
share based on the implied equity value of $4.244 billion, contending that it “defies
logic” for a sophisticated financial sponsor like Vista to “not calculate what [its] total
expenditure in a transaction will be before agreeing to it.” 144 Likewise, Plaintiff
maintains that the Board viewed Vista’s final bid, based on Goldman’s fairness
presentation, as an offer of $4.244 billion in aggregate equity value. Plaintiff submits
that Vista’s Equity Commitment Letter, Goldman’s fairness presentation, the negotiation
of the termination fee and limited guaranty provisions, and TIBCO’s September 29 press
release is sufficient evidence to support a finding of a reasonable probability of proving
that the parties understood, and thereby agreed, that the Merger would be at an aggregate
equity value of $4.244 billion. 145 Thus, Plaintiff requests that the Court reform Section
2.7(a)(ii) of the Merger Agreement to provide for each TIBCO stockholder to receive
$24.58 per share instead of $24.00 per share.
In opposition, Vista 146 contends that the only agreement between Vista and
TIBCO on the economic terms of the Merger that can be supported by the record is what
is ultimately reflected in the Merger Agreement: that TIBCO’s stockholders would
receive $24.00 per share. In particular, Vista emphasizes that its final offer on September
26 and the Board’s acceptance of that offer on September 27 both contemplated a
144
Pl.’s Br. 31.
145
Id. 26-29.
146
Vista argued against Plaintiff’s reformation claim on behalf of all defendants against
whom Plaintiff seeks reformation.
37
transaction at $24.00 per share, without any reference to, and thus without any agreement
on, what the aggregate equity value would be. 147
Vista further argues that the parties’ mistaken assumption “as to how contractual
terms will operate in practice”—here, Vista’s and TIBCO’s references to the Merger
being for an aggregate equity value of $4.244 billion—“cannot supplant the actual
agreement that is reached between the parties as memorialized in a contract.”148
According to Vista, because “none of [Plaintiff’s] documents state that Vista and TIBCO
agreed to anything other than a $24.00 per share purchase price,” and because the Merger
Agreement accurately reflects that $24.00 per share agreement, there was no meeting of
the minds on any specific term that is not accurately reflected in the Merger
Agreement. 149
To evaluate the parties’ competing contentions, I use the analytical framework that
the Supreme Court employed to analyze the reformation claim at issue in Cerberus.
There, a financial sponsor (Apollo) acquired a target company (MTI) pursuant to a
merger agreement that set forth a formula reflecting the total consideration that MTI
stockholders would receive: $65 million, less transaction costs, and less proceeds from
147
Vista’s Br. 26-27.
148
Id. 28.
149
Id. 36. Vista also challenges Plaintiff’s standing to assert a reformation claim based
on a disclaimer of third-party beneficiary rights in the Merger Agreement and on the
theory that the claim is derivative in nature and thus cannot be asserted by Plaintiff as a
direct claim. Id. 11-15. Because I conclude that Plaintiff has not demonstrated a
reasonable probability of success on the merits of the claim, I do not address these issues.
38
the sale of certain options and warrants. After the transaction closed, the plaintiffs filed
suit and alleged that the executed contract contained a drafting error that warranted
reformation because Apollo and MTI actually had agreed to a different purchase price:
$65 million, less transaction fees, plus the proceeds from the sale of the options and
warrants. According to the Supreme Court, the plaintiffs would need to prove three facts
(each by clear and convincing evidence) to justify reformation of the purchase price
under the doctrine of mutual mistake: “(i) MTI thought that the merger agreement gave
MTI’s stockholders the proceeds of the options and warrants; (ii) . . . Apollo was also
similarly mistaken . . .; and (iii) that MTI and Apollo had specifically agreed that the
proceeds of the options and warrants would go to MTI’s stockholders.” 150
Applying the analytical framework used in Cerberus to this case, Plaintiff could
recover on his reformation claim only if he were to establish three facts at trial: (i) Vista
thought that the Merger would be consummated at an aggregate equity value of $4.244
billion; (ii) TIBCO also thought that the Merger would be consummated at an aggregate
equity value of $4.244 billion; and (iii) Vista and TIBCO had specifically agreed that the
Merger would be consummated at an aggregate equity value of $4.244 billion. Because
Plaintiff ultimately would have to establish each element by clear and convincing
evidence, it is necessary to consider that evidentiary standard in the context of Plaintiff’s
preliminary injunction motion. 151 Thus, Plaintiff must show a reasonable probability of
150
Cerberus, 794 A.2d at 1152 (emphasis added).
151
See Cirrus Hldg. Co. Ltd. v. Cirrus Indus., Inc., 794 A.2d 1191, 1201-02 (Del. Ch.
2001) (considering the clear and convincing evidence standard in the context of the
39
success that he could prove each of the three elements of his reformation claim by clear
and convincing evidence. As discussed below, I conclude that Plaintiff has satisfied this
standard for the first two elements, but not for the third element.
1. Did Vista Believe the Merger Would Be Consummated at an
Aggregate Equity Value of $4.244 Billion?
In my opinion, Plaintiff has a reasonable probability of establishing by clear and
convincing evidence that Vista thought it would pay $4.244 billion in aggregate equity
value to acquire the outstanding stock of TIBCO. The presentation book used when the
Vista investment committee met on September 26 and approved a maximum bid of
$24.25 per share (based on the Second Cap Table) reflects that Vista clearly was
cognizant of the relationship between a per-share bid and the total purchase price implied
by that bid. It also is reasonable to infer from Vista’s request for Goldman to confirm the
accuracy of the Final Cap Table mere hours before it made its $23.85 per share bid on
September 26, that Vista needed to know the share count to determine the aggregate
equity value it would pay in making a per-share bid. Vista’s final $24.00 per share bid,
based on the Final Cap Table, is functionally equivalent to the earlier total purchase price
ceiling set by its investment committee. And, at the same time that Vista was considering
the aggregate equity value when submitting its final $24.00 per share bid, it offered to
plaintiff’s preliminary injunction motion where the plaintiff’s underlying claim for
specific performance was subject to that evidentiary standard); cf. Cerberus, 794 A.2d at
1149 (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 254 (1986)) (holding that a
trial court should apply the substantive burden of proof at the summary judgment stage).
40
decrease the termination fee to 2.75% of that equity value, which equated to $116.7
million.
The spreadsheet accompanying the Equity Commitment Letter, which was
provided to TIBCO only hours before the Board met to evaluate the Merger Agreement
and which explicitly equates the $24.00 per share price to an equity value of $4.244
billion, further provides strong evidence that Vista anticipated paying approximately
$4.244 billion to acquire the equity of TIBCO. This conclusion is consistent with the
reference to an approximate enterprise value of $4.3 billion not only in the September 29
press release announcing the transaction, which Vista reviewed, but also in the early
drafts of Vista’s ratings agency presentations for debt financing.
Although Ford testified that Vista was considering other factors beyond the total
purchase price when it submitted its final bid for $24.00 per share, 152 his testimony also
supports the conclusion that Vista expected to pay $4.244 billion for TIBCO’s equity.
For example, when Vista eventually learned about the mistake in the Final Cap Table,
and thus that it would only have to pay $4.144 billion for TIBCO’s equity, Ford felt
“pleasure”—because Vista was “potentially buying the company for less than [it] had
expected.” 153
152
Ford Dep. 95.
153
Id. 172.
41
On the whole, Plaintiff has shown in my view a reasonable probability that he
could prove, by clear and convincing evidence, that Vista mistakenly believed it would
pay $4.244 billion in total to acquire the equity of TIBCO in the Merger.
2. Did TIBCO Believe the Merger Would Be Consummated at an
Aggregate Equity Value of $4.244 Billion?
Similarly strong evidence, in my view, demonstrates a reasonable probability of
success for Plaintiff to prove by clear and convincing evidence that the Board mistakenly
thought that TIBCO was agreeing to a transaction in which TIBCO stockholders would
receive $4.244 billion in aggregate equity value. The Special Committee’s request on
September 26 for the remaining two bidders to improve their offers by decreasing the
termination fee of the merger agreement, which was being negotiated as a percentage of
aggregate equity value, reflects that these directors were aware of the total value of the
proposals, particularly for Vista’s final $24.00 per share offer. Likewise, during the
Board’s review of the terms of Vista’s final offer on September 27, Goldman noted on
several slides of its presentation that the $24.00 per share consideration equaled an
aggregate equity value of $4.244 billion and an enterprise value of $4.3 billion.154
Finally, after adopting the Merger Agreement, the Board approved the September 29
press release reflecting that the $24.00 per share in consideration plus the assumption of
net debt implied a $4.3 billion enterprise value—and thus a $4.244 billion equity value.
This preliminary record is sufficient for me to conclude that Plaintiff has a
reasonable probability of success in establishing, by clear and convincing evidence, that
154
Pl.’s Ex. 18 at TIBCOM00000348, 358.
42
TIBCO mistakenly believed that Vista would pay $4.244 billion in total to acquire the
equity of TIBCO in the Merger.
3. Before Signing the Merger Agreement, Had Vista and TIBCO
Specifically Agreed that the Merger Would Be Consummated at
an Aggregate Equity Value of $4.244 Billion?
Despite the evidence reflecting that Vista and TIBCO both mistakenly believed
before signing the Merger Agreement that Vista would pay $4.244 billion in total to
acquire the equity of TIBCO, Plaintiff has not, in my opinion, demonstrated a reasonable
probability that he could prove by clear and convincing evidence that Vista and TIBCO
had specifically agreed that the Merger would be at an aggregate equity value of $4.244
billion. In other words, Plaintiff has not shown a reasonable probability of proving, by
clear and convincing evidence, that the Merger Agreement does not accurately reflect the
parties’ meeting of the minds on the essential economic term of the Merger: a deal at
$24.00 per share.
To the contrary, key evidence from September 26 and 27 strongly demonstrates
that what Vista ultimately offered and what TIBCO ultimately accepted was expressed in
terms of dollars per share and not in terms of an aggregate equity value. The three
documents that evidence their agreement to a transaction based on a per-share price are
(1) Vista’s September 26 bid letter conveying the $24.00 per share offer, 155 (2) the
September 27 minutes reflecting the Board’s acceptance of the $24.00 per share offer,156
155
Vista Ex. 3.
156
Vista Ex. 4.
43
and (3) the Merger Agreement Vista and TIBCO executed on September 27, which sets
forth the consideration to be received by TIBCO stockholders as $24.00 per share. 157 All
of these documents reflect an agreement to a transaction based on a per-share figure, and
not based on an aggregate equity value. This per-share agreement is consistent with the
way in which Goldman, on behalf of TIBCO, was conducting the auction: on a per-share
basis. Based on the preliminary record, at no point in time did Vista offer a specific
aggregate equity value, and at no point in time did the Board accept a specific aggregate
equity value. 158
Instead, the sale process reflects that Vista and TIBCO understood that the number
of fully diluted shares to be acquired in a transaction, and thus the aggregate equity value,
was a bit of a moving target. For example, the fact that Goldman had circulated different
cap tables for the Company on August 29, 159 on September 21, 160 and on September
26, 161 demonstrates that Vista and TIBCO understood that, until there was a definitive
agreement, the number of fully diluted shares was changing, even if only modestly.
Indeed, the Merger Agreement reflects that the parties recognized that the number of
157
Merger Agreement § 2.7(a)(ii).
158
Nor at any time during the negotiations did Vista offer, or TIBCO accept, a per share
offer of $24.58 per share—the amount to which Plaintiff asks the Court to reform Section
2.7(a)(ii) of the Merger Agreement.
159
Goldman Ex. 8.
160
Goldman Ex. 12.
161
Pl.’s Ex. 13.
44
fully diluted shares might further change between signing and closing. Specifically, the
Merger Agreement affords Vista a termination right if any inaccuracies in the Cap Rep at
closing would increase Vista’s total acquisition cost (calculated pursuant to the terms of
the Merger Agreement) by more than $10 million.
Notably, the Merger Agreement does not provide that the consideration of $24.00
per share would change in proportion to any increase in the share count after signing.
Thus, it is difficult to see how Vista and TIBCO could be said to have specifically agreed
to a fixed aggregate equity value of $4.244 billion, as Plaintiff claims, when they agreed
in the Merger Agreement that the aggregate equity value could change.
Vista argues that, rather than specifically agreeing on an aggregate equity value,
Vista and TIBCO agreed to allocate the risk of the Merger’s aggregate equity value
through the representations and warranties, closing conditions, and termination rights set
forth in the Merger Agreement. 162 I agree. “Merger contracts are heavily negotiated and
cover a large number of specific risks explicitly.” 163 Contractual representations and
warranties “serve [this] important risk allocation function.” 164 Here, through the Cap Rep
and Vista’s corresponding termination right, the parties did just that in the Merger
162
Vista’s Br. 28-30.
163
In re IBP, Inc. S’holders Litig., 789 A.2d 14, 68 (Del. Ch. 2001).
164
Cobalt Operating, LLC v. James Crystal Enters., LLC, 2007 WL 2142926, at *28
(Del. Ch. July 20, 2007), aff’d, 945 A.2d 594 (Del. 2008).
45
Agreement with respect to the aggregate equity value in the Merger. TIBCO also
disclosed this concept to its stockholders in the proxy statement. 165
Against this evidence, Plaintiff relies on Goldman’s September 27 fairness
presentation, Vista’s Equity Commitment Letter, and TIBCO’s September 29 press
release, which Vista approved. In my opinion, although these three documents appear to
reflect a shared misunderstanding on the aggregate equity value for the Merger, they do
not support the existence of a specific, prior agreement on that aggregate equity value—
and they fall well short of the type of persuasive evidence necessary to prove this element
of a reformation claim by clear and convincing evidence. The Equity Commitment Letter
and the accompanying spreadsheet are not compelling evidence of either an offer by
Vista, or an acceptance by TIBCO, to consummate a transaction at an aggregate equity
value of $4.244 billion. By its terms, the Equity Commitment Letter was not a
commitment to pay an aggregate amount, but rather a commitment to pay up to an
aggregate amount. Goldman’s presentation is also not compelling evidence of a specific,
prior agreement for at least two reasons: there is no evidence that Vista or TIBCO
prepared that document, or that it was intended for a purpose other than for Goldman’s
opinion on the fairness of the Merger consideration. The September 29 press release
announcing the Merger, furthermore, was drafted after the parties approved the Merger
Agreement and, thus, is not strong evidence of a specific, prior agreement.
165
Proxy at 72 (“[T]he representations and warranties may have been included in the
merger agreement for the purpose of allocating contractual risks between TIBCO, Parent
and Merger Sub rather than to establish matters as facts[.]”).
46
Finally, the fact that the parties negotiated the termination fee and the limited
guaranty in the Merger Agreement as a percentage of the assumed $4.244 billion equity
value (derived from the $24.00 per share consideration and the Final Cap Table) does not
outweigh, in my view, the strong evidence showing that the $24.00 per share figure in the
Merger Agreement accurately reflects what Vista offered and what TIBCO accepted. 166
In sum, on the preliminary record before me, Plaintiff has failed to show a
reasonable probability that he could prove, by clear and convincing evidence, that there
was a specific agreement between Vista and TIBCO for $4.244 billion in aggregate
equity value. The Merger Agreement accurately reflects, on this record, the meeting of
the minds on the essential economic term of the Merger: $24.00 per share. Plaintiff has
therefore failed to demonstrate a probability of success on his claim for reformation. For
this reason, his motion for a preliminary injunction based on the reformation claim is
denied.
C. Plaintiff’s Fiduciary Duty-Related Claims Do Not Provide a Basis for
Preliminary Injunctive Relief
1. The Parties’ Contentions
Plaintiff argues that, independent of the reformation claim, a preliminary
injunction should be issued based on his breach of fiduciary claim against the Board and
his aiding and abetting claims against Goldman and Vista. These claims do not challenge
166
Perhaps Plaintiff would have a reasonable probability of success in establishing by
clear and convincing evidence that the termination fee and limited guaranty provisions of
the Merger Agreement should be reformed, but that request was not the subject of his
preliminary injunction application and was expressly disclaimed by counsel at oral
argument. Tr. of Oral Arg. 9-10.
47
any actions taken during the sale process before the Merger Agreement was signed, or
any of the disclosures in the proxy statement that was issued in connection with the
scheduled meeting for TIBCO’s stockholders to vote on the Merger. Rather, these claims
focus on events occurring after the error in the share count was discovered.
Specifically, Plaintiff contends that the Board breached its duty of care by failing
“to adequately inform itself about the nature [and/or] circumstances surrounding the
share count problem.” 167 Plaintiff cites to the fact that at its October 23 meeting, the
Board was still unaware of how the error occurred and “did not inquire whether Vista had
relied upon the [Final Cap Table] in making its final bid.” 168 Plaintiff argues that had the
Board done so, and thereby become aware that Vista did rely on the incorrect share count
when it prepared its bid, “the Board would have known its leverage with Vista to
preserve the $100 million.” 169
Plaintiff also contends that the Board breached its fiduciary duties under Revlon by
failing “to act reasonably in the circumstances to secure the highest price available.” 170
To that end, Plaintiff cites to the Board’s failure to request “that Vista amend the Merger
Agreement to reflect the parties’ original agreement” and its decision not to seek to
167
Pl.’s Br. 34-35.
168
Id. 36.
169
Id.
170
Id.
48
recover damages from Goldman for its allegedly “grossly negligent acts.” 171 Plaintiff
further contends that Vista and Goldman knowingly participated in the Board’s breaches
of fiduciary duty.
The form of injunctive relief Plaintiff seeks based on his fiduciary duty claim was
not explained in his moving papers. At oral argument, Plaintiff’s counsel suggested that
a vote on the transaction be enjoined until the Board satisfies its fiduciary duties—i.e.,
until the Board seeks recourse to recover the $100 million in lost equity value from Vista
and/or Goldman. 172 Plaintiff argues, furthermore, that TIBCO stockholders will suffer
irreparable harm if an injunction is not issued because “injunctive and equitable relief
may well be all that is available to the stockholders given the exculpatory effect of 8 Del.
C. § 102(b)(7) for monetary damages for a breach of the duty of care.” 173 Relatedly,
Plaintiff argues that the balance of the equities tilts in his favor because TIBCO
stockholders will suffer “the loss, or risk of loss, of their right to obtain the additional
$100 million in merger consideration” while “Defendants will suffer no hardship other
than delaying the stockholder vote on the [Merger].” 174
In opposition, the Board emphasizes that Plaintiff “does not challenge . . . the
independence and disinterestedness of the Board or otherwise allege that the directors
171
Id. 37-40.
172
Tr. of Oral Arg. 139.
173
Pl.’s Br. 47.
174
Id. 48-49.
49
were incentivized to achieve anything other than the highest price for TIBCO’s
stockholders.” 175 The Board submits that it conducted a thorough process that included
contacting twenty-four potential bidders, and achieved an attractive premium, particularly
in light of TIBCO’s recent earnings results.
Focusing on the time period relevant to Plaintiff’s fiduciary duty claim, the Board
argues that the record reflects that it acted reasonably: it consulted with its legal counsel,
Wilson Sonsini, “thoroughly discussed the potential options available,” 176 and “weighed
the risk of doing anything that might be perceived as re-opening the deal with Vista
against the risk of losing the terms of the current Merger Agreement at $24.00 per share”
before voting to proceed with the existing Merger Agreement. 177 Thus, according to
TIBCO, the deliberative process the Board undertook after learning of the share count
error and its subsequent decision to proceed with the Merger at $24.00 per share was a
reasonable course of conduct under Revlon.
Finally, the Board contends that “[P]laintiff’s claims unquestionably seek
monetary relief that can be remedied . . . through damages post-closing” 178 and that the
175
TIBCO’s Br. 36-37. The Board consisted of eight members, seven of whom were
outside directors. TIBCO’s CEO, Ranadivé, holds more than 9 million shares of TIBCO
stock and thus would stand to receive more than $4.5 million in additional consideration
if the per share price was increased by $.58 per share.
176
The Board did not waive privilege concerning these discussions. Thus, the
preliminary record available to the Court was further limited concerning the thoroughness
of the Board’s decision-making after the share count error was discovered.
177
TIBCO’s Br. 42-49.
178
Id. 50.
50
balance of the equities tilts against issuance of an injunction. “[D]elaying the vote even
for a matter of weeks approaching the end of the fiscal year will require that the
Company announce its revenue and earnings figures,” which, according to the Board,
presents a risk to TIBCO stockholders because the Company “already failed to meet Wall
Street expectations in the prior two quarters of 2014.” 179
2. Plaintiff Has Failed to Demonstrate the Existence of Irreparable
Harm or that the Balance of the Equities Tilts in His Favor
As an initial matter, the form of preliminary injunction Plaintiff seeks based on his
fiduciary duty-related claims, which was articulated on the fly during oral argument, is
vague and impracticable. Plaintiff’s suggestion that the stockholder vote be enjoined
until the Board seeks recourse to recover the $100 million in lost equity value from Vista
and Goldman amounts to an open-ended injunction of potentially indefinite duration that,
from my perspective, would be impossible to implement effectively.
Putting aside the impracticability of the remedy sought, I conclude for the reasons
discussed below that a preliminary injunction based on Plaintiff’s fiduciary duty-related
claims is not warranted for lack of a showing of irreparable harm and because the balance
of the equities weighs in favor of permitting TIBCO’s stockholders to vote on the
proposed Merger. Given this conclusion, it is not necessary that I engage in a
probabilistic assessment of the merits of Plaintiff’s fiduciary duty and aiding and abetting
claims, and I decline to do so from the limited record before the Court. There are,
however, two troubling aspects of the record that bear mention.
179
Id. 55-56.
51
First, as should be obvious, precision is critical in a conducting a corporate sale
process. In this case, the process appears to have been flawed, in my opinion, because
bids were presented to the Board and considered on a per-share basis without anyone
simultaneously confirming the share count assumptions underlying those bids. 180 As
discussed above, this lack of precision led to an apparent misunderstanding by the Board
concerning the equity value derived from Vista’s final bid. Although no contention is
made that the highest bidder did not win the auction in this case, the failure to verify the
assumptions underlying a bid and to ensure that bids are presented with complete
information on an apples-to-apples basis could lead to a different outcome in the future
and/or deprive stockholders of a target company of maximum value for their shares.
Directors of Delaware corporations may, of course, retain and rely on skilled advisors to
solicit, review and analyze bids. 181 Such advisors, like the ones here, often are richly
compensated to perform these functions. In this case, however, a significant open
question lingers concerning the basic competence with which the mechanics of the bid
process were handled.
Second, and more to the point of Plaintiff’s fiduciary duty-related claims, serious
issues have been raised concerning the quality of the information that was provided to the
180
See, e.g., VISTA Ex. 4 at TIBCOM00000464.
181
See, e.g., 8 Del. C. § 141(e).
52
Board after the share count error was discovered. 182 The preliminary record shows that,
as of October 23, when the Board met to consider its options, there remained uncertainty
about how the error had occurred and whether Vista had relied on an incorrect share
count when submitting its final bid. 183 Yet, identifying the source of the error would
seem to be a matter within TIBCO’s control that should have been determined promptly.
More troubling, the record shows that Goldman was aware a full eight days earlier (on
October 15) that Vista, in fact, had relied on the Final Cap Table in making its final
bid, 184 yet this information apparently was not provided to the Board. 185 Had this critical
information been presented to the Board, it may have made a different calculation than it
did in considering its options to maximize value for TIBCO’s stockholders. 186 The
resolution of this issue, however, must await the development of a more robust factual
record.
Separate from the possible merits of Plaintiff’s fiduciary duty-related claims, I
conclude that a preliminary injunction is not warranted because Plaintiff has plainly
182
See, e.g., Paramount Commc’ns Inc. v. QVC Network Inc., 637 A.2d 34, 45 (Del.
1994) (“[Under Revlon,] [t]he directors have the burden of proving that they were
adequately informed and acted reasonably.”).
183
See, e.g., Pl.’s Ex. 30 at TIBCOM00047691; West Dep. 123.
184
See, e.g., Pl.’s Ex. 28.
185
See, e.g., Pl.’s Ex. 28.
186
For example, armed with the knowledge that Vista made its final bid based on the
Final Cap Table and thought that it would pay $4.244 billion to acquire the equity of
TIBCO, the Board may have changed its recommendation that stockholders vote in favor
of the Merger, if permitted under the Merger Agreement, to put pressure on Vista.
53
failed to establish the existence of irreparable harm or that the balance of the equities
weighs in favor of denying TIBCO’s stockholders the opportunity to vote on the
proposed Merger.
“An injunction, being the ‘strong arm of equity,’ should never be granted except in
a clear case of irreparable injury, and with full conviction on the part of the court of its
urgent necessity.” 187 To demonstrate irreparable harm, a plaintiff must show harm “of
such a nature that no fair and reasonable redress may be had in a court of law and must
show that to refuse the injunction would be a denial of justice.” 188 Thus, a “harm that can
be remedied by money damages is not irreparable.” 189
Here, Plaintiff’s fiduciary duty-related claims concern a definable sum of money:
approximately $100 million. Based on Plaintiff’s theory of the case, at least on the
record before me, the potential harm is circumscribed by this amount. Even if the Board
is later able to demonstrate that its members are exculpated from any monetary liability
pursuant to a Section 102(b)(7) provision in TIBCO’s charter, that potential affirmative
defense does not change the fact that the damages alleged by Plaintiff are quantifiable.
Although “the one-two punch of exculpation under Section 102(b)(7) and the full
187
Gimbel v. Signal Cos., Inc., 316 A.2d 599, 602 (Del. Ch. 1974), aff’d, 316 A.2d 619(Del. 1974).
188
Aquilla, Inc. v. Quanta Servs., Inc., 805 A.2d 196, 208 (Del. Ch. 2002) (internal
quotation marks omitted).
189
In re Delphi Fin. Gp. S’holder Litig., 2012 WL 729232, at *18 (Del. Ch. Mar. 6,
2012) (citing Gradient OC Master, Ltd. v. NBC Universal, Inc., 930 A.2d 104, 131 (Del.
Ch. 2007)).
54
protection under Section 141(e)” may limit (but does not eliminate) the prospects for
recovery against the members of the Board, 190 those statutory protections do not apply to
aiders and abettors of breaches of fiduciary duties, including the duty of care. 191
This is not a case in which an injunction is required to rectify, before the
transaction closes, the irreparable harm to stockholders of a tainted sale process. The
Court is not being asked to intervene and prevent the proverbial eggs from being
scrambled in order to open the door to a superior proposal from a third party who was not
given a reasonable opportunity to bid on TIBCO because of an unreasonable sale process.
Thus, Plaintiff’s significant reliance on the Court’s analysis in In re Del Monte Foods Co.
Shareholders Litigation is misplaced.
In Del Monte, the Court enjoined a stockholder vote on a proposed transaction for
a period of twenty days during which certain deal protection devices would not apply in
order to remedy (to the extent practicable) the taint on a sale process, particularly the
post-signing go-shop process, caused by the conflicts of interest of the board’s financial
advisor. 192 Here, by contrast, no contention is made that the deal process was tainted by
self-interest or that the highest bidder did not win the auction. Indeed, Plaintiff candidly
acknowledged that “the bidding leading to the $4.3 billion deal announcement appears to
190
See In re Del Monte Foods Co. S’holders Litig., 25 A.3d 813, 818 (Del. Ch. 2011).
191
In re Rural Metro Corp. S’holders Litig., 88 A.3d 54, 99-103 (Del. Ch. 2014) (finding
the board’s financial advisor liable for monetary damages for aiding and abetting the
directors’ breach of the duty of care).
192
See Del Monte, 25 A.3d at 842-43.
55
have been public and free from improper taint.” 193 The alleged harm to Plaintiff—not
from the pre-signing sale process as a whole but instead from the Board’s post-signing
decision to not seek to obtain an additional $100 million in consideration from Vista—is
not irreparable, in my opinion. 194
Finally, in my view, the balance of the equities clearly weighs against enjoining
the upcoming stockholder vote. As noted, Plaintiff has no quarrel with the quality of the
process that resulted in the proposed Merger, and no bidder has emerged with a topping
offer since the Merger Agreement (reflecting a price of $24.00 per share) was signed and
disclosed publicly almost two months ago. Although the share count error colors the sale
process here, the existence of that error and the Board’s response to its discovery has
been disclosed to TIBCO’s stockholders. Thus, in my opinion, delaying for some
indefinite period the opportunity for TIBCO’s stockholders to vote on the Merger on
193
Pl.’s Br. 34.
194
Plaintiff cites two other cases for the proposition that the existence of exculpation
under Section 102(b)(7) counsels in favor of granting injunctive relief: Lyondell
Chemical Co. v. Ryan, 970 A.2d 235 (Del. 2009), and Police & Fire Retirement System
of City of Detroit v. Bernal, 2009 WL 1873144 (Del. Ch. June 26, 2009). Both are
inapposite. In Lyondell, the Delaware Supreme Court simply acknowledged that a
Section 102(b)(7) provision can foreclose the possibility of post-closing damages for a
breach of the fiduciary duty of care. See Lyondell, 970 A.2d at 239. In Bernal, the Court,
in the context of granting a motion for expedited proceedings, observed that “injunctive
relief may be the only relief reasonably available to shareholders for certain breaches of
fiduciary duty in connection with a sale of control transaction, particularly where the
company has adopted a provision exculpating its directors from personal liability for
monetary damages for breaches of the duty of care.” Bernal, 2009 WL 1873144, at *3.
It does not follow from either of these cases that the mere existence of a Section
102(b)(7) provision threatens irreparable harm to stockholders because the Court may
conclude that a board breached only its duty of care.
56
December 3, would harm TIBCO’s stockholders by unnecessarily delaying them from
receiving $24.00 per share if they decide to approve the Merger. This, along with the fact
that the alleged harm to TIBCO’s stockholders is readily quantifiable, persuades me that
the balance of the equities does not favor entry of a preliminary injunction and that
TIBCO’s stockholders should have “the chance to decide for themselves about the
Merger.” 195
IV. CONCLUSION
For the foregoing reasons, Plaintiff’s motion for a preliminary injunction is
denied.
IT IS SO ORDERED.
195
In re El Paso Corp. S’holder Litig., 41 A.3d 432, 452 (Del. Ch. 2012).
57